Asia-Pacific’s commercial real estate slowdown continues

KUALA LUMPUR: Asia-Pacific commercial real estate investments fell for a second consecutive quarter, declining in value by 37% to US$25 billion (RM73.75 billion) in 2Q11, according to DTZ Research’s Investment Market Update report.

Activity slowed in all countries with double-digit declines from 1Q11. In comparison, for, the majority of countries had posted recoveries except for China and Japan.

Although investor sentiment remains positive, a more cautious approach has been adopted in response to continuing debt issues across Europe and the US coupled with anti-inflationary policies implemented across Asia Pacific, said David Green-Morgan, head of DTZ Asia Pacific Research.

The dip in transaction volumes could indicate that the global economic problems are still affecting the region’s economies and property markets, said the report.

In almost every country in Asia-Pacific, the strong economic growth of 2009 and 2010 had translated into higher inflation. Even with the policy measures in place, it is still taking longer than expected to curb inflation.

In China, property trading dropped 23% to US$14 billion due to a reduction in land supply and restrictive lending to developers by local authorities.

Japan’s investment activity fell by 86% to US$1.1 billion over the quarter. Lacking good investment opportunities, no major deals were done as investors continued to hold assets.

In Hong Kong, investment volumes dipped 14% to US$1.5 billion. For its office sector, limited supply and strong demand continued to push up prices to potentially unsustainable levels. Investors are turning to other sectors such as industrial and retail to seek higher returns.

In Singapore, investments slumped by 24% to US$3.3 billion. Despite ample liquidity, the very few core assets for sale in Singapore are driving investors to look for higher-yield sectors.

Overall in the region, mixed-use properties contributed to US$13 billion worth of transactions, accounting for over half of all transactions in 2Q. It included several large deals such as the sale of Boon Lay Way development in Singapore.

Excluding China, mixed-use properties saw activity grow by 7% or US$2.4 billion with its overall market share increasing to 22% from 10% over the quarter.

Office sales fell significantly by 46% to US$6.2 billion. Overall retail sales in the region fell by 35% to US$3.5 billion but in Malaysia, retail property sales dominated.

“REIT investors continue to be aggressive in the market for good properties and are expanding to more secondary cities, especially retail assets that are supported by growing domestic spending,” said Brian Koh, DTZ’s head of research in Malaysia.

Investors are reportedly looking for higher-yield sectors, potentially the industrial sector. However, industrial properties sales fell by 68% to US$2.1 billion in 2Q11.

The public sector was again a major net seller of commercial property in 2Q. It divested over US$14 billion with the majority coming from within China where the government continues to offload long leasehold development opportunities to the open market.

After two years of net buyers, private investors became net sellers in 2Q. With the recovery of the market since the financial crisis, they sought to offload and take profits, said the report.

Net buyers for 2Q were private property companies and corporate, which together acquired almost US$10 billion of new assets.  

The average deal size declined to US$40 million, the lowest since the global financial crisis when it was around US$20 million.

“For the first time in two years, there were no individual investment deals over US$1 billion in the quarter largely due to the decline in activity in Japan, one of the largest investment markets,” said Green-Morgan.

Domestic investors accounted for 90% of all deals, continuing the trend over the last two years of being the most active buyers around the region.

This article appeared on the Property page, The Edge Financial Daily, July 29, 2011.

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